House Democrats created a stir a few days ago when it came out that they are considering new taxes on 401k accounts, with the goal of eliminating them in favor of government-held retirement accounts. It's no surprise that liberals in Congress want to take over control of a little more of your hard-earned wages, but it's instructive to listen to why. This is what Chairman George Miller had to say during the recent commitee hearing that examined the idea:
With respect to the 401k, it appears to be a plan that is not really well-devised for the changes in the market. We load an awful lot onto the back of the individual – and I’ve been to more seminars and conferences where they ask for more and more education about savings and investing. We keep asking this person to get smarter and smarter about their savings and that’s sort of it and they’re on their own...
Miller makes the problem clear: people aren't smart enough to plan for their retirement. They can't be trusted with their own money. They need the help of the government to make sure that they're setting enough aside for their golden years. Right now they're dependent on the advice of financial planners who make money off their advice, and so they can't protect themselves and will ultimately wind up eating dog food in some back alley.
"But," you might ask Chairman Miller, "hasn't the government -- in its infinite wisdom -- already taken care of my retirement? Isn't that what Social Security and Medicare are for?" And Miller would answer "why yes - yes they are. But you see, there's a little problem. Social Security and Medicare are going bankrupt, so in a few years there won't be any money left to give you the benefits we promised. Barack Obama won't start talking about it until after election day, but he's going to have to dramatically reduce benefits, or raise taxes... or both."
Continuing your conversation with Chairman Miller, you could say "but I don't get it, George. How can that be? I know that my payroll taxes all went into a trust fund. It was like a lockbox. My money went in there, and you kept it safe, so that someday when I retired, you could open up that trust fund and give me back my money. What went wrong George? What went wrong?" And Miller would explain "well, here's the thing. We didn't just hold on to the money. We invested it in T-bills. And then the government took that money and wasted it -- just flushed it down the drain on all sorts of earmarks and whatnot. So now it's all gone, and all that's in the trust fund is a pile of T-bills. I'm really sorry."
You're disappointed, but you're still willing to listen. So Miller starts to sell you on why this new retirement plan he's selling is better than your 401k. He says "Don't worry. You're going to love this. You know how your 401k is invested in a market that has its ups and downs? No worry with my plan. All that money you give us is going to be invested in the safest instrument there is: T-bills!"
And that's where you go out and vote for someone who'll stop George Miller from flushing more of your money down the toilet while claiming to be doing you a favor.